> > You cannot realistically build enough so that the rents decrease.
> I'm curious what makes you think this.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
It seems entirely logical that rents should decrease.
Not the OP but I do always question this, despite sounding logical. Why? Because it has never worked that way in practice. Can you think of a city that built so much housing that rents became cheap (relative to local income)?
It's easy to say "built twice as many housing units as you had residents" and I agree if you could do that overnight, rents would free-fall. But in practice it would take years to build so much housing. Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive. So you end up with a city that is more vibrant, with a lot more people and a lot more jobs and economic activity. All good things, but rents don't go down, given all this success rents go up.
> Sure, more housing supply will lower housing prices -- and the resulting increase in population will increase the demand for everything else that plays into affordability of living in the city. What do the laws of supply and demand say about that?
Yep. You're exactly right. Population is increasing, driving demand, raising prices. Problem is, population will continue to increase for the projected future. Since it's unconstitutional to prevent people from moving somewhere, this needs to be accommodated.
Building more housing will induce demand. But it will also mitigate against a future where growing demand and fixed supply raise rents even more.
The _ONLY_ way to substantively lower rents is to increase supply or decrease demand. Nothing else will solve this. And for what it's worth, rent is about 65% of my monthly budget; lowering rents would substantially increase affordability/cost of living in this area
> They do not have the power to defy economics and charge arbitrarily high rents as supply tends to infinity.
Housing supply will never trend to infinity.
Ok I realize you exaggerate and probably meant to some very large number. Even that is quite wishful thinking since housing is expensive to build and takes time and people (who are in short supply, tried hiring a house building crew lately?)
> More supply pushes rents down even if all the excess supply is acquired by investors.
Can you name a few US cities where this has worked out that way?
>About 20 years ago they began densifying like crazy. 2-3 story houses for 8 people became 8-floor apartments and studios. And you know what? Rent is higher than ever! Everywhere!
So developers started building houses, which caused more people want to move there and rising rent prices? You sure you have the right cause and effect there? It sounds like 20 years ago demand for housing prices started to rise and the supply never kept up.
> This is basically the late stage of us continually not building enough housing for years and years. I'm not sure how anyone thought this would turn out differently.
Absolutely! Build more housing, at any price level[0], and rents will stop growing and maybe even come down.
>In a lot of ways I think the cost of housing is dependent on the housing density vs job density of the area. If job density is much higher than the housing density, then the price of housing goes up by a lot.
The cost of housing is dependent on job density * quality only to the point what people are able to pay, and then rest is what they are willing to pay. A lot of people buy/rent slightly above their means if they are willing to pay it. Housing price is like an auction house so willing to pay is a bigger factor than able to.
Artificially reducing number of available houses comes in a lot of reasons/pretense but in the end its just a result of people seeing/forced to see their house as an asset; You acquired your house at price X at auction. A local urban developer want to build 100 more units close to you, from prediction of demand and would be profitable at price X (or even <X), so you passively/actively work against that proposal, tell the developer that he can build up to 90 more units, so price of your estate increase X+N. Now the next 90 buyers that bought the house have a reason to keep the price of estate above X+N, tell the developer that he can only make 80 units. Rinse and repeat.
> In less than 3 years the rent in our working class city went up 45%.
I sympathize with that but I want to make sure people understand the dynamics. Prices are driven by supply and demand. If there's only one empty apartment in the city and you're willing to pay $2000/month, I am gonna have to pay $2100 month if I want to live there instead of you. That's sort of separate (though related to) prices of houses.
What will make rents go down? Only two things: demand goes down, meaning people aren't looking to move into / are moving out of the city. This happened in NYC rents in early covid as everyone bailed out. So one way to drive prices in your city down is to have some even that renders it undesirable (COVID, defund the police, rising crime, suburbs more attractive with work from home, etc.) The other way is to increase supply - that is to build more housing. Counterintuitively, this happens more when prices are high because it compels builders to create more housing stock.
People in NYC love to complain about all the new construction going on (or at least that was going on in the last few decades) but imagine what rents would have been without that.
>I have never seen rents drop due to high density.
You think housing is somehow immune to supply and demand? If that's the case, you can't claim rents are rising due to increase demand from young professionals. Which then raises the question: "What does affect rental prices?"
> I believe that if you increase supply and allow more affordable housing in a city, it will only marginally decrease prices but will mainly attract more people to this city.
I believe that allowing more units will lower prices, but what if it didn't? What if all that happened is that a whole bunch more people got to live where they want to live, productivity increased, and the largest cities got more dynamic and interesting? What if that's all that happened?
> fundamentally I wonder if the housing supply could even be increased enough to materially affect housing prices.
Yes, it can; SF built 5,000 units last year, a record, and rents and owner move-in evictions finally declined. At the very least, building more housing can prevent further large price rises.
> BTW this is what's happening here in Portland OR, where a building boom has been going on for years. The area population has increased, housing prices are still out of range for many people.
The question is what would happen if you didn't build the housing. I contend that the people moving in would outbid everyone for the existing housing stock, which would drive rent increases even more than rents are currently going up. It may be that the new housing is just keeping things at a base level.
Flipped on its head the logic here doesn't really make sense; destroying existing housing stock would be disastrous for rents and prices, it makes sense that building more would help prevent increases.
> the situation described would reduce rents for your average consumer because the increased building sale prices makes it more profitable to build more buildings, increasing the supply of apartments
Ok, so why don't we see that happen in the real world? What you're saying is empirically wrong. So please supply an explanation of what's happening in reality.
> Where I live they have not been able to build new housing fast enough to keep up with rising population over the last thirty years.
Yes, because rules in the US handicap new housing growth.
> The prices increase directly proportional to the current velocity of new housing availability at any given moment.
Yes, because they have the same cause: demand increasing.
Imagine that every car maker was heavily constrained in how many cars they could make. As demands for cars rise, they find every angle to try and produce more cars, but the price keeps going up. Did the new supply cause the price to rise? No, they just have the same cause.
There have been myriad studies on this, almost every economist finds that new housing in booming areas makes housing prices less bad than they would be otherwise.
> You can’t make more land but you can always build more houses irrespective of demand.
This isn't true. Zoning severely handicaps more housing in the places people want to live.
Well, except for Houston (sorta), and indeed, rent there seems substantially lower than other major cities in Texas like Dallas and Austin.
> It's not possible to create an insane level of supply for appartment rentals
This is technically true, but not for the reasons you list, and it isn't the case here.
You can always build up. 150 floor buildings are not possible - if rent goes high enough they are worth building. Nobody is going to build that if they don't expect a return on investment though.
It isn't a problem in reality because jobs face the same pressures. eventually some company will decide rent in those dense neighborhoods (sometimes cities as well) are too high, and move. That moves some housing demand with it.
Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.
That doesn't follow. To build more supply the question how much it costs to build vs how much you can rent for. A a landlord the total profit in rent for the city isn't my concern it is my marginal profit that matters. Even if we double the supply of apartments in the city, my building 100 more isn't going to make much a difference in that, but I get a larger share of that 10% decrease in price and so my profit is still higher building 100 apartments than zero.
I don't know what is going on in Berlin (I can guess). I know in San Francisco the city has for many years refused to allow building at anywhere close to demand. Thus more people want to live in the city than actually can get an apartment there. Plenty of builders are willing to build more supply, but they are not allowed to under reasonable terms so they don't. (as a result of this there is a lack of experienced people in construction and so even if SF allowed unlimited building in practice there would only be a gradual uptick in building over 10 years while the industry gets experienced people back)
> I expect what would really happen if SF just went all in building new housing, is that prices would drop in the city slightly, allowing people to move back into the city, thus increasing demand and increasing prices back to where they were.
That seems unlikely to me, based on intuition and my admittedly elementary understanding of economics. It seems very unlikely that a significant increase in the quantity of housing units would cause no change in the price of housing units.
> We've already tried this, it doesn't work. Housing is valued exclusively by the value of the housing around it. Building more housing raises the value (and therefore the cost) of all nearby housing, and does so continuously until the economy resets.
Really? Maybe I'm being overly simplistic, but surely building enough dwellings to exceed the immediate demand would lead to prices dropping?
Could you point towards some links to learn more about this?
> If homes are to be affordable that means more need to be built.
I'm not convinced it's that simple. Houses aren't widgets that you can flood the market with an unlimited supply to drop the price as much as desired. Homes cost a lot to build and use limited resources, which means at a certain point building more increases the cost.
Picture a city that is building only 1000 homes a year and then they decide to start building 10,000 a year. Will the prices drop? If the prices were very high due to excess demand, probably not because there is enough demand to absorb those 10k units without meeting all the demand, so prices won't drop.
Ok then, let's go all out and build a million units (let's imagine that land is somehow available for that in this thought exercise). Will prices go down? No, prices will go up! Ask anyone trying to build a home in a tight market, labor prices are extremely high because there is so much demand for a limited supply of labor. If this hypotetical city tried to build a million units, labor costs will skyrocket and so will the price per unit.
There are no efficiencies of scale left in a mature industry like house builing. Building more doesn't make the per unit cost cheaper, it actually makes it higher due to labor availability.
> Building more housing will allow more people to move there
I live in New York. Nobody moves here because they want to live in a nice building that happens to be in New York. They move to New York and then find housing. Demand is largely unaffected by new supply in large cities. Also, I live in the Flatiron neighbourhood. A bunch of new development has held my rent flat for 3 years now. My building tried raising rents; I met a potential tenant looking at a unit on my floor. She went to the new luxury building down the street for his $50 more. My building, facing the new competition, dropped their ask by $100.
> If you then refuse to build up, it makes the affordability much, much worse.
How? If you've balanced jobs/wages against housing supply via standard planning practices, then you should be able to tweak demand.
If demand is still high, density just drives prices higher, and shifts the entire housing economy to a rent-seeking one.
Furthermore, the real-estate market is global, but the housing market is local. My parents own homes in another state that they've never even seen, and merely rent out via a property management company.
As land prices get driven up through density, how do people participating in the local housing market compete with those in the real estate market?
> But yeah, to your point, building more housing in a supply constricted market requires like way more proof.
Having lived in downtown San Francisco for 7 years now, I can’t help but notice how all the new highrises and fancy apartments have pushed down the prices of the normal stuff.
My current landlord tried to sell his house before we moved in and couldn’t get “enough” money for it because why pay $1,000,000 for a house from 1906 when you could pay the same for new construction across the street? Instead he had to settle for renting (to us). 3 years later and similar apartments in the area are now selling for $800,000 because there’s even more new construction around.
Rents are down too. Why pay $4000/mo to live in an old house when you can pay $4200/mo to live in a luxury highrise across the street?
> More housing doesn't create demand, the city's economy creates demand.
I doubt there is a simple one-way causation, it's a feedback loop.
The economy of a city only grows if more and more people and businesses move in, which means more housing and density which in turn grows the economy and prices even more.
Is there any example of a city where housing was quite expensive and over time housing became cheap merely by building more of it, while still remaining a thriving city?
As far as I can see, once a city is thriving and expensive it only becomes cheap through economic collapse (e.g. Detroit) which isn't the solution anyone wanted.
> I'm curious what makes you think this.
> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
It seems entirely logical that rents should decrease.
Not the OP but I do always question this, despite sounding logical. Why? Because it has never worked that way in practice. Can you think of a city that built so much housing that rents became cheap (relative to local income)?
It's easy to say "built twice as many housing units as you had residents" and I agree if you could do that overnight, rents would free-fall. But in practice it would take years to build so much housing. Meanwhile, more and more people and jobs are moving in, attracted by all that new housing. The area becomes ever more popular and more expensive. So you end up with a city that is more vibrant, with a lot more people and a lot more jobs and economic activity. All good things, but rents don't go down, given all this success rents go up.
reply